"On the passenger side, the outlook is stable and looking somewhat better," said Cathay chairman Christopher Pratt, but he added that air fares were still under the expected level.

Outbound travel to Japan had increased 18 per cent so far this year as a result of a weaker yen, said chief operating officer Ivan Chu. But concerns about slack traffic from Japan to Hong Kong and mainland China persist.

Cathay has added 31 extra flights for the Easter holidays, compared with 16 last year, in light of an expected boom in passenger traffic.

But the cargo market had yet to show any signs of a sustained recovery despite a surge in December - the first time in 16 months - said chief executive John Slosar.

The carrier's 2012 result was slightly better than expected as an uptick in the second half offset the HK$935 million of losses in the first.

But the core operations of Cathay and subsidiary Dragonair incurred HK$110 million in losses after tax. Cargo, which accounts for 25 to 30 per cent of income, was the major drag as an overcapacity of freighters led to a price war among operators.

Shanghai-based Air China Cargo, which is 49 per cent owned by Cathay, reported HK$600 million in losses.

Cathay has now lowered its expectations for the growth of cargo shipments. It cancelled orders for eight Boeing 777-200 freighters and sold four B747-400 converted freighters to the planemaker on March 1. Air China Cargo, meanwhile, decided to take those eight freighters to replace some of its old ones.

Cathay has acquired three B747-8 freighters, with which it hopes to replenish the fleet and pull the cargo business back into the black.

Leisure travel demand remained strong last year. Passengers from Hong Kong, who are more price-sensitive, tended to buy last-minute deals.

The carrier started a "fanfare" programme last year under which it offers discounts on its website every Tuesday. It has sold more than 50,000 tickets, or 2,000 a week, since the plan was rolled out on October 18.

Passenger yield, or the revenue per seat per kilometre travelled, fell 3.5 per cent year on year. The drop in business- and first-class ticket sales was even steeper as corporate demand remained poor as a result of the economic slowdown in Europe.

"The demand from the financial sector has improved in the first two months [of this year]," said Chu.

Fuel costs, which accounted for 41 per cent of operating costs, jumped 0.8 per cent. The company posted HK$500 million in gains by way of fuel hedging, compared with a gain of HK$1 billion the year before.

It has covered 30 per cent of its expected fuel consumption for this year through hedging and 20 per cent in 2014 and 2015.

Shouldn't fuel charges be a factor for all airlines? Wonder if Cathay needs to make its business class fares more competitive. They have lost my business due to being excessively higher than other comparable carriers.